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"NEW" TRADE BARRIERS

The Uruguay Round has clearly had an effect on reducing the use of tariffs as a barrier to the trade in forest products. Additional agreements and commitments of the Uruguay Round may also have an influence on reducing many non-tariff barriers in importing markets faced by forest products.

However, these gains could be counteracted by other forms of trade barriers that have surfaced in recent years. This section looks at four of these "new" forms of trade barrier:

� export restrictions by developing countries to encourage domestic processing of tropical timber for export;

� environmental and trade restrictions on production and exports in developed countries that affect international trade patterns;

� quantitative restrictions on imports of "unsustainably produced" timber products; and

� the use of "eco-labelling" and "green" certification as import barriers.

Although only the last two measures could be strictly defined as "new", all of these trade measures have been increasingly employed in recent years and have the potential to affect forest product trade flows significantly.

Export Restrictions

In the past, export taxes were used by tropical timber exporting countries primarily as a means to raise revenue from the export of wood in rough. Although there have always been difficulties in administrating and collecting export taxes on logs, they were generally higher than stumpage fees and generated more government revenue (Gillis 1990; Repetto and Gillis 1988; Grut, Gray and Egli 1990).

However, tropical timber exporting countries have increasingly been imposing export taxes and bans for other strategic purposes. One justification often cited for these policies is that they compensate exporters for the import barriers in developed economy markets by making the price of raw logs higher to the processors in the importing country while reducing the cost disadvantage faced by domestic processors within the timber producing countries. This strategy usually has as its primary aim the creation of more export revenues and employment for the forestry sector, and for the larger exporters such as Malaysia and Indonesia, the complementary objective of capturing large shares of the international markets for value-added tropical timber products. Some tropical timber exporting countries also claim that their policies will reduce harvesting pressure on the forests by increasing value added per log extracted. Many log-producing countries see the use of export taxes and bans as the means to compensate domestic processing industries for import barriers faced in developed economy markets.

Initially, the preference seems to have been for export taxes, through employing escalating rates. For most countries, export tax rates on logs generally ranged between 10 and 20%. Export taxes on sawn timber, veneer and plywood have been negligible. Where sawn timber exports were taxed, rates were typically half that of logs. During the 1980s the use of export tax structures to promote forest-based industrialization was largely replaced by log export bans in tropical forest countries, although export taxes are still being used in certain regions and for specific timber products. However, more recently Indonesia has reversed its policy and replaced the log export ban with taxes. Malaysia is also favouring the use of taxes instead of bans.

Environmental Regulations in Developed Countries

Increasingly, domestic environmental regulations are being applied to forest industries in developed countries that may have a wider impact on the trade in forest products. In some cases, the effects are from the environmental regulation alone; more frequently, environmental regulations are combined with export restrictions as well. For example, recent studies carried out in the United States have suggested that the combination of environmental and trade restrictions on logging in the Pacific Northwest in the early 1990s may have had significant impacts on timber flows and prices both domestically and abroad (Flora and McGinnis 1991; Perez-Garcia 1991).

Flora and McGinnis (1991) indicate substantial impacts on domestic and export trade from environmental restrictions both on their own and in combination with trade restrictions. The wider domestic and global impacts have been examined by Perez-Garcia (1991). This study assessed the effects of environmental legislation and of the log export ban for Washington State lands, which has the effect of increasing the domestic supply of logs. The results of the study indicate significant global impacts of the environmental restrictions, both on their own and in conjunction with the trade restriction.

The projected impacts of the environmental restrictions on their own are:

� An increase in sawlog prices around the globe both in the short and long term, led by large increases in the Pacific Northwest region.

� Global sawlog production decreases by 0.4 mn m3 in the short run and 1.2 mn m3 in the long run; however, large falls in the Pacific Northwest and neighbouring regions are somewhat offset by increased production in other US regions, Canada, Japan, Sweden, Finland, Western Europe, Chile, Australia and New Zealand.

� The net short and long term effects of a decline in sawlog production on log consumption by mills is to decrease consumption in both the US West and Inland regions, as well as in major importing countries such as Japan and Republic of Korea. In contrast, more logs are consumed in the US South and Canada.

� In the sawnwood and plywood markets, prices also increase as a result of reduced global supplies in the short and long term. Over the long term, production of sawnwood and plywood decreases in the US West, whereas Canada increases sawnwood exports and the US South increases both sawnwood and plywood exports. Japan is forced to increase imports to replace falls in domestic lumber production.

The effects of combining the environmental restrictions with the 75% export ban for Washington State forests offsets some of the above impacts in the short run for the US West, but has cumulative effects on other markets. In the long run (e.g. the year 2000), many of the effects of the trade restriction are overshadowed by the impacts of the environmental restrictions.

However, if other log producers such as the former Soviet Union or tropical forest countries substantially increase their production and exports to compensate for the restrictions in the Pacific Northwest, the impact of the US log shortfall on international markets, prices and timber harvesting is reduced. The market share of the Pacific Northwest will not only fall as log costs for sawmills and plywood mills increase, but log importing countries will also experience an increase in their log costs. Increased substitution from other timber sources and of non-wood products is expected, as is a general increase in consumer costs globally (Perez-Garcia 1991). On a global scale, the environmental implications of increasing timber harvests in other regions of the world may offset the environmental gains associated with the environmental restrictions in the Pacific Northwest. This will particularly be the case if the expansion of harvesting in the ex-Soviet East and tropical countries proceeds without correction of the domestic policy and market failures and trade distortions.

Import Restrictions on "Unsustainably" Produced Timber

Pressure from environmental groups and consumer-led boycotts in developed market economies is leading to serious consideration of bans or at least quantitative restrictions on the import of timber products that are not "sustainably produced". In most cases, the focus has been on imports from tropical timber producing countries, where it is believed that the export trade has contributed significantly to tropical deforestation. However, more recently efforts have been made to extend such restrictions to all timber trade, not just products from tropical regions.

A recent study has suggested that, despite their popular appeal, the use of such bans on tropical timber products would not be appropriate for encouraging sustainable management of tropical timber production in exporting countries (Barbier et al. 1994). There are several reasons for this.

First, producer countries argue, with some justification, that a ban on tropical timber products is discriminatory; i.e. similar rules do not apply to the temperate timber trade. It is unlikely that they would allow such a policy option to be sanctioned by any multilateral forum , and would certainly oppose it as contravening GATT rules. Without the cooperation of producer countries, an import ban would most likely be arbitrary and unworkable.

To extend the ban to include both tropical and temperate product trade would be even more infeasible. Those developed market economies that produce temperate timber also tend to be the most under pressure from environmental groups to instigate a tropical timber import ban. Given that the global temperate market is much larger and highly competitive, the governments in these countries would probably resist hurting the prospects of their own forest industries by extending the ban to cover all timber product trade.

More importantly, there is substantial evidence suggesting that an import ban on tropical timber products would be ineffective in reducing either tropical deforestation or the trade in "unsustainable" timber - and may be even counter-productive.19/ Timber production is not the major cause of tropical deforestation. Not all (and a declining share) of the tropical timber produced is for export and an increasing share of tropical timber exports is being absorbed in South-South trade. This would suggest that, in response to a tropical timber ban imposed by current importers, major tropical timber exporters (e.g. in South East Asia) may be able to divert some timber supplies to domestic consumption, or to newly emerging export markets, fairly easily. For those tropical forest countries where timber exports are not significant, and are not a major factor in deforestation (e.g. Latin America), a ban may have little impact on timber management or overall deforestation, although it may assist in some individual situations.20/

In fact, to the extent that a tropical timber import ban does affect the export of tropical timber products substantially, it would have little impact on the economic incentives for sustainable management at the concession level, and may actually encourage poor management practices.

Although in the short run a trade ban might reduce pressure on tropical forests through lower production for the trade, in the medium and long run a ban or punitive quantitative restrictions is likely to have a detrimental impact. By eliminating the gains from trade, a ban on tropical timber imports would decrease the value derived from timber production and thus actually reduce the incentives for tropical forest countries to maintain permanent production forests. Faced by declining export prospects and earnings from tropical timber products, developing countries might decide to convert more forests to alternative uses, notably agriculture. Thus the effect of the ban might be to reduce log production and exports, but may actually increase overall tropical deforestation in the medium and long term.

Nevertheless, there are strong pressures within some importing countries to push their governments towards various unilateral interventions. Local government bans on the use of tropical timber have been implemented in some countries (e.g. Germany and the Netherlands). Product labelling has been implemented in Austria and is under consideration in Germany. In the United Kingdom retailers and NGOs are cooperating to develop product labelling of "sustainably managed" tropical timber products. In all major Western importing countries, consumer-led boycotts of tropical timber and campaigns by environmental groups - although not strictly a trade policy intervention - could further encourage action.

Despite their potential for being discriminatory, there is considerable debate as to whether such domestic environmental controls that result in quantitative restrictions on forest product imports are compatible with GATT rules. In reviewing the feasibility of the Netherlands adopting a unilateral ban on "unsustainably" produced tropical timber imports, Hewett, Rietbergen and Baldock (1991) argue that such a unilateral ban could comply with GATT if: i) restrictions on domestic consumption of tropical timber were introduced (e.g. in construction or furniture); ii) the controls were applied strictly in line with the criteria of sustainable management of production, and avoided discrimination between countries on other grounds; iii) the reasons for the ban were made explicit, allowing sustainably produced timber unrestricted entry; and, iv) if the ban can be justified and explained in terms of conserving tropical forests. However, others are more pessimistic, and expect any import ban or other environmental control on the timber trade not only to be unacceptable under recent GATT rulings, but in the case of any European country adopting a unilateral policy, also to contravene European Union legislation (Arden-Clarke 1991; Dudley 1991).

In recent years the emphasis has shifted from quantitative restrictions on "unsustainably" managed tropical timber products to imposing such restrictions on all "unsustainably" produced timber products. If applied to all the trade and not just tropical timber products, then the policy could no longer be criticized on the grounds that tropical timber exporting countries are being discriminated against. However, the use of trade bans and quantitative restrictions as a means to control "unsustainable" timber production may still prove to be inefficient and counter-productive in the long run. By reducing the gains from trade, such restrictive policies may lead to more production forest land being converted to other uses, and encourage increased diversion of the remaining timber production to domestic consumption or to importing countries that choose not to impose such trade bans and restrictions. In addition, the extent to which a single importer or trading bloc can be effective in promoting "sustainable" timber management in producer countries through unilateral trade measures is likely to be limited. On the other hand, because many of the major importing countries in the forest products trade are also major exporters, it may be more difficult for an international or multilateral agreement to adopt import bans or severe controls on "unsustainably" produced timber.

Recent calls for broadening the objectives of the GATT - in particular its "successor" the WTO - to further the use of trade interventions for environmental policies might, if successful, open the door to a whole host of unilateral timber trade measures. For example, Arden-Clarke (1991) has argued that the GATT should be amended to allow any of the "external" environmental costs of production to be considered essentially an environmental "subsidy" for any output that is subsequently exported. Thus he suggested GATT should be amended to allow contracting states to:

� discriminate between like products that vary in the degree to which the environmental and resource costs of their production are incorporated in their price;

� protect domestic industries that internalize more of their costs than foreign competitors, with import tariffs or export subsidies; and,

� provide subsidies to maintain the competitiveness in international markets of exported products with greater cost internalization than competing products.

Such an approach would clearly allow nations to invoke the full range of policy measures available to them for intervention in the timber trade. For example, as noted above, the United States has already imposed environmental restrictions on its own Pacific Northwest logging operations. Given this policy, and under amended GATT/WTO rules, the US Government would be able to limit timber imports from other countries that did not maintain similar environmental standards for their timber operations. Alternatively, the US could choose to subsidize plywood and lumber mills in the region and elsewhere in the country for their loss of "international competitiveness" as a result of the environmental restrictions.

In addition, under the above suggested amended GATT/WTO rules, any importing country or trading bloc could impose trade sanctions on producer countries that appeared to be producing timber or timber products "unsustainably". To the extent that "unsustainable" management leads to lower harvesting costs and thus lower export product prices, importing countries would have the right to impose tariffs as a means of correcting this "environmental" export subsidy. If such a broadening of the GATT/WTO rules is achieved, a situation that is by no means certain at this time, then the use of quantitative restrictions and even countervailing duties by importing countries - e.g. to restrict imports of timber products that are not "sustainably" produced or to counter perceived "environmental" export subsidies - would become an increased feature of the forest products trade. However, such a policy is likely to be more of a new form of "disguised" protectionism rather than being an effective policy to encourage more sustainable management of timber production in exporting countries.

It appears, however, that such changes are extremely unlikely to be agreed to.

Certification and Eco-Labelling21/

Any trade policy mechanism that seeks to distinguish between "sustainably" and "unsustainably" produced forest products will require some form of certification or labelling scheme for this purpose. This is regardless of whether the objective is the establishment of a comprehensive and internationally agreed certification scheme to promote sustainable management of production forests or whether it is to use eco-labelling and "green" certification as a means to restrict forest product imports. Whether the intention exists or not, certification and labelling of forest products always have the potential of acting as trade barriers. On the other hand, labelling and certification have important and legitimate uses in terms of informing consumer choice, improving market information, and promoting product differentiation.

Part of the problem in determining whether certification of forest products may be a potential trade barrier arises from confusion over the use of the term, particularly in regard to distinguishing forest products that are "sustainably" produced. For example, as applied to trade, certification has been used variously to mean:

Product labelling - labelling all products that include wood with a label indicating whether or not it is sustainably produced.

Concession certification - certifying all the timber produced by a specific concession to be "sustainably produced".22/

Country certification - certifying all timber products from a country that can prove it has begun complying with an internationally agreed sustainability objective, such as in the case of tropical timber compliance with the sustainable management guidelines of the International Tropical Timber Organization (ITTO).

Mandatory product labelling - even if it is internationally agreed - is the most difficult of the certification procedures to implement and verify. This is perhaps why most proposals are not advocating product labelling currently. Given the vast array of forest products traded, and the degree of processing involved in producing final products, it will be extremely difficult to set up a workable product labelling scheme that will be internationally verifiable. It is made more problematic by the fact that the end uses of timber are often not discrete products, but components of products and composites, as well as basic structures, fixtures and fittings. The real danger is that any such scheme of product labelling will essentially work as a powerful non-tariff barrier to discriminate against the import of forest products in general. This will particularly be the case if it is implemented unilaterally or on a piecemeal basis, i.e. by individual importers or by selective trading blocs. However, from the standpoint of importing countries, this is perhaps the easiest way to implement and administer such labelling schemes.

Concession certification essentially involves: i) assessment of a forest concession in terms of compliance with sustainable management guidelines; ii) monitoring of actual forestry practices in the concession, including volumes sold and destination, up to the retail level; and, iii) ensuring that each product produced with timber from that concession has appropriate certification to verify its origin. In theory, the concession certification approach appears to offer the best means of guaranteeing that the forest products trade is committed to securing timber from only "sustainably" managed sources. It has the possible attraction to traders and timber companies of earning "brand recognition" for buying timber supplies from sustainably managed concessions. Promotion of this fact could be an important "selling point" as part of the promotion of forest products in consumer markets - much like current campaigns to sell "organically grown" and "environmentally friendly" products. These positive features of concession (or company) certification suggest that there are excellent incentives for "sustainably managed" concessions and companies to promote their products through a voluntary labelling scheme. A group of countries, and even their host producer countries, may even develop a common "voluntary" labelling scheme. Such efforts are essentially elements of a good marketing and export promotion strategy.

However, the cooperation of producer countries is essential. It would be very difficult to make a concession certification scheme that is imposed on all concessionaires of a producer country workable and effective without that country agreeing to the scheme and assisting in its monitoring and enforcement. If producer countries do not accept either the certification scheme or the way it is carried out by independent inspectors, then the result may be a dispute with trading partners that attempt to impose concession certification unilaterally.

Equally, if an importing country seeks to restrict forest product imports to only those that come from concessions and companies whose production has been certified as "sustainable", and yet there is no bilateral or multilateral agreement on the procedures and rules of certification, then such a policy could easily be used as a form of disguised import restriction. On the other hand, as already noted, there are many problems faced by trying to establish international agreement on concession or company certification, let alone making it work effectively and in a non-discriminatory manner.

Although country certification could be imposed unilaterally by importing countries, it has not been so far. Instead, country certification is usually proposed as part of an international agreement, such as in the case of tropical timber an international commitment by both ITTO producer and consumer member countries to adopt policies and practices towards encouraging sustainable management of production forests and timber products, and which follow the ITTO guidelines (Barbier et al. 1994). As long as country certification is implemented through international agreements, it is possible that it might not be considered a trade barrier to forest products under existing GATT rules.

Certification is seen by many to be a key issue in all discussion of trade policy issues. Despite the different viewpoints, there is an emerging consensus that an international certification scheme will need to be adopted sooner or later. Moreover, to be both effective and non-discriminatory an international certification scheme should be voluntary, respect national sovereignty, conform to GATT trade measures, and be based on transparent, internationally recognized guidelines that are compatible with the specific conditions affecting each producer. If such a scheme could be constructed, it would be consistent with many of the general agreements recently concluded in the Uruguay Round, such as the Agreements on the Application of Sanitary and Phytosanitary Measures and the Agreement on Technical Barriers to Trade.

Without international agreements or standards for certification, eco-labelling or environmental protection measures applied to the forest products trade, then there is a danger that such measures will lead to discriminatory trade restrictions when they are employed unilaterally by importing countries.

Because of the growing number of trade disputes over unilateral schemes the GATT/WTO may need to address explicitly the issue of international certification of the forest products trade in the near future.

Conclusion

Developing countries are continuing to use export restrictions on wood in rough and semi-processed products to support domestic processing industries and improve export prospects for higher valued forest products. Despite the losses in terms of economic inefficiencies and the implications for the management of their forest resource base, developing countries are unlikely to end such policies but may instead employ them more extensively.

Developed countries are also beginning to employ a variety of environmental regulations in their forest industries - both alone and in conjunction with export restrictions - that may have significant trade implications. Whether or not used intentionally for this purpose, such regulations may lead to trade distortions and discrimination. Many developed countries are also under pressure to adopt quantitative restrictions to limit the import of "unsustainably" produced forest products or to impose countervailing duties on imported products that benefit from an "environmental" export subsidy - i.e. "unsustainable" forest management that leads to lower harvesting costs and thus lower export product prices. This may result in an attempt to amend GATT/WTO rules to allow exceptions for quantitative restrictions and countervailing duties on these environmental grounds.

Finally, the number of certification initiatives applied to the forest products trade has increased rapidly in recent years. Generally, the aim of these initiatives is to distinguish "sustainably" produced forest products or to ensure that forest product imports conform to domestic environmental standards and regulations. Provided that such regulations and schemes are voluntary, transparent and justified, are agreed mutually between trading partners or through multi-lateral negotiations, comply with GATT rule and conform with internationally recognized guidelines, then their potential use as trade barriers will be drastically reduced.

Although there are legitimate uses of all these policy measures, the rate at which they are being implemented and the frequency with which they have lead to trade distortion and discrimination suggests that their use must be examined carefully. International agreements and rules governing their use should also be negotiated. Indiscriminate and widespread application of these trade measures as "new" barriers to the forest products trade could easily over-ride any gains resulting from the recently concluded Uruguay Round.

7 / WTO became operative on 1 January 1995 and will administer the global rules agreed to in the Final Act of the Uruguay Round, as well as a number of multilateral agreements.

8 / Binding a tariff means setting a ceiling limit on the rate, i.e. the importing country has committed itself not to raise the tariff on a product above the bound rate.

9 / The tariff and non-tariff levels indicated are those which existed at the time the report was prepared (1994). Since then some changes have taken place as countries have continued to negotiate, both multilaterally and bilaterally.

10 / Excluding petroleum products.

11 / Import data from 1990 or latest available year, and for all developed country participants in the Uruguay Round, excluding imports from free-trade area partners (e.g. intra-European Union trade) and from contractual preferential arrangements.

12 / Wood, pulp, paper and furniture.

13 / The new scheme leaves the coniferous plywood quota unchanged, as it has been formally brought into the GATT agreement.

14 / The developed country importers analyzed are: Australia, Canada, the European Union, Japan, New Zealand, South Africa and the United States. The developing countries are: PR China, India, Republic of Korea, Malaysia and Thailand.

15 / See Barbier et al. (1994) for a review and further discussion of these studies.

16 / Based on FAO(1994) categorizing of forest products, which excludes furniture, packaging cases, builders' joinery and similar wooden items.

17 / If for illustrative purposes it is assumed that the gains in income lead to an equivalent increase in demand for forest products, then the latter would also rise by 0.47 to 2.21% each year. If half of this additional demand is met by imports, then the increase in world imports of forest products would be around 0.24 to 1.11% annually. As total world forest product imports in 1992 amounted to US$ 106,574 million, the additional annual increase in forest products trade could be in the range of US$ 252 to 1,178 million. Clearly, such income effects are substantial, and if they occur, would be just as if not more significant than the gains in forest products trade from tariff reductions estimated in this paper.

18 / In comparison, the GATT (1994) study analyzes the gains in world trade from the Uruguay Round in 2005, which are expressed in 1992 export values. The analysis shows that the total gain in the trade in forest products may amount to US$ 285 to 431 million in the year 2005. This represents a 3.7-5.6% increase over the total 1992 value of exports in the forest products analyzed, which in the GATT model were estimated to be worth US$ 7.7 billion. However, comparison of the results of the analysis in this paper with that of the GATT (1994) study is difficult because the two studies do not analyze the trade effects for the same group of forest products and markets. In addition, the GATT study's baseline estimate of 1992 export values excludes intra-European Union trade, which is significant for forest products. Moreover, the pre-Uruguay Round base rate used for the tariff reductions in the GATT analysis is calculated using the pre-Uruguay Round MFN tariff rate averaged over the tariff lines in each sector, and over the countries in each region, using import shares as weights. Finally, by using computerized general equilibrium analysis the GATT study is able to incorporate the trade effects not only of tariff reductions but also of some of the other trade liberalization measures agreed in the Uruguay Round (e.g. eliminating non-tariff barriers in textiles and clothing and automobiles, and commitments to reductions in export subsidies), as well as estimate the inter-sectoral and inter-regional effects of all trade liberalization measures.

19 / See Barbier et al. (1994) for a review and discussion of the evidence.

20 / Conversely, this latter might in turn be at the expense of other countries or regions.

21 / The term "eco-label" refers to a label that gives information on the overall environmental quality of a product. Most labels for forest products are not eco-labels but single-issue environmental labels because they only provide an assessment of one aspect - in-forest production methods - not of all environmental aspects.

22 / Similar to concession certification would be company certification, i.e. certifying the practices of companies that manage and harvest concessions and produce processed forest products.

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